US v. Chow, 93-03-00139. Slip Op. 94-58.
| Decision Date | 06 April 1994 |
| Docket Number | No. 93-03-00139. Slip Op. 94-58.,93-03-00139. Slip Op. 94-58. |
| Citation | 850 F. Supp. 39 |
| Parties | UNITED STATES, Plaintiff, v. Kirk Koo CHOW, Defendant. |
| Court | U.S. Court of International Trade |
Frank W. Hunger, Assistant Atty. Gen., David M. Cohen, Director, Civil Div., Commercial Litigation Branch, U.S. Dept. of Justice, Edmund W. Chapman, C. Parker-Harrison, U.S. Customs Service, Washington, DC, of counsel, for plaintiff.
Law Offices of Stephen M. Creskoff, Stephen M. Creskoff, Washington, DC, and Geary, Porter & West, Joseph W. Geary, Dallas, TX, for defendant.
Defendant moves pursuant to USCIT Rule 11, 28 U.S.C. § 1927 (1988), 28 U.S.C. § 2412 (1988 & Supp. IV 1992), and the "inherent authority of this Court" for (1) the imposition of sanctions on the United States, the U.S. Customs Service (Customs), and certain employees of the U.S. Department of Justice (Justice)1 and Customs;2 (2) the Court to issue a written finding to the Special Counsel, Merit Systems Protection Board stating certain Customs' officers and employees acted arbitrarily and capriciously in withholding records from defendant's counsel;3 and (3) an evidentiary hearing. Plaintiff opposes defendant's motion.
On December 20, 1993, this Court granted defendant Kirk Koo Chow's motion to dismiss an action brought against him by plaintiff. United States v. Kirk Koo Chow, 17 CIT ___, 841 F.Supp. 1286 (1993), appeal docketed, CAFC Docket No. 94-1213 (Fed. Cir. Feb. 16, 1994) (Chow). Plaintiff had commenced the action to recover civil penalties for violations of 19 U.S.C. § 1592 (1988) and to recover marking duties provided in 19 U.S.C. § 1304(f) (1988) pursuant to 19 U.S.C. § 1592(d). Id. at ___, 841 F.Supp. at 1286. Plaintiff alleged in its complaint that Mr. Chow (1) aided and abetted NHT and Stanley in entering merchandise into the commerce of the United States by means of fraud and in violation of 19 U.S.C. § 1592(a), and (2) was liable for duties on certain entries from which the country of origin markings were removed. Id. at ___, 841 F.Supp. at 1287.
In dismissing Chow, the Court held (1) Customs failed to exhaust its administrative remedies pursuant to 28 U.S.C. § 2637(d) (1988) and failed to provide defendant with due process of law pursuant to U.S. CONST. amend. V and (2) Customs failed to satisfy the particularity requirement of USCIT Rule 9(b). Id. at ___, 841 F.Supp. at 1290.
Defendant argues he should be awarded sanctions because plaintiff and its employees initiated Chow and penalty proceedings XX-XXXX-XXXXX and XX-XXXX-XXXXX without a reasonable inquiry as to the facts, for an improper purpose and in bad faith. According to Chow, he suffered financial and physical injury as a result of plaintiff's improper initiation of the three proceedings and the violation of his constitutional right to due process.
Defendant claims Cohen and Chapman failed to undertake a reasonable inquiry as to whether "the proceedings were well grounded in fact and warranted by existing law, or interposed for any improper purpose." Defendant's Brief at 25. According to defendant, no factual or legal basis existed for paragraphs 5 and 23 of plaintiff's complaint because Chow was not the importer of the merchandise in dispute. Defendant claims because Senior Special Agent Sherman could not point to any admissible evidence demonstrating Chow aided and abetted the alleged marking scheme, her October 5, 1993 deposition indicates conclusively that no factual basis existed for paragraphs 11 and 13 of the complaint.
Additionally, Chow asserts Parker-Harrison and De Stefano violated Customs Regulations 19 C.F.R. §§ 103.5-.11 (1992) by demanding a fee of $3,432.58 prior to examination of any documents which defense counsel had requested pursuant to the Freedom of Information Act (FOIA), in particular 5 U.S.C. § 552 (1988). In further support of his contention that plaintiff and its employees acted in bad faith, defendant argues plaintiff improperly asserted a privilege claim respecting ninety-nine discovery documents.
Defendant requests that the Court award sanctions which include (1) the costs and reasonable attorneys fees and other reasonable expenses incurred by defendant with respect to this action and Customs administrative penalty proceedings XX-XXXX-XXXXX and XX-XXXX-XXXXX; and (2) monetary sanctions against individual Customs and Justice officials found to be acting contrary to USCIT Rule 11 and/or 28 U.S.C. § 1927.
Plaintiff maintains it did not institute an action against Chow in bad faith, but rather for a proper purpose based upon a reasonable investigation. According to plaintiff, its legal position in the action was one of first impression and was supported by statute, regulation and case law. Contrary to Chow's assertions, the government argues neither it, its attorneys nor other employees unreasonably or vexatiously multiplied the proceedings. Finally, plaintiff argues neither it nor its attorneys violated the FOIA and regardless of any violation, the matter is not within the jurisdiction of this Court.
Defendant seeks the imposition of Rule 11 sanctions on plaintiff, Cohen and Chapman for failure to conduct a reasonable inquiry. USCIT Rule 11 provides in relevant part:
The signature of an attorney or party constitutes a certificate by the signer that the signer has read the pleading, motion, or other paper; that to the best of the signer's knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.... If a pleading, motion, or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, shall impose upon the person who signed it, a represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the pleading, motion, or other paper, including a reasonable attorney's fee.
Rule 11 thus imposes an obligation on attorneys to conduct a reasonable inquiry to ensure documents filed with the court are well grounded in fact and the position taken in them is warranted by existing law, and to not file a document for any improper purpose.
The Court finds plaintiff and its attorneys satisfied the requirements of USCIT Rule 11 by conducting a reasonable inquiry. Customs conducted an investigation in which it (1) secured summaries of statements made by approximately nineteen former and present Blackhawk and NHT employees indicating management directed them to remove country-of-origin markings from the Blackhawk tool line; (2) obtained approximately thirty samples of altered hand tools from former and present NHT employees; and (3) conducted a Customs regulatory audit of Stanley Works (the company which purchased NHT in an asset sale) with respect to Stanley's domestic manufacturing operations performed on imported socket forgings during 1987. After the case was referred to Justice, the attorney assigned to the case, Chapman, conducted a pre-filing investigation. His investigation consisted of a review of Customs investigation, telephone conferences and a meeting with the relevant Customs personnel involved in the case, and conferences with Justice personnel.
Finding plaintiff conducted a reasonable inquiry is not inconsistent with the grounds on which the Court dismissed this action. The Court held in Chow that plaintiff failed to state a claim upon which relief could be granted due to its failure to allege fraud with the requisite particularity. Chow, 17 CIT at ___, 841 F.Supp. at 1290. Apparently plaintiff simply failed to adequately use the information from its inquiry in drafting its complaint. Similarly, the other grounds upon which Chow was dismissed — failure to exhaust administrative remedies and failure to provide due process of law — do not preclude a finding by the Court that plaintiff and its attorneys conducted a reasonable inquiry. The Court, therefore, denies defendant's request for Rule 11 sanctions.
Defendant also requests the Court to impose sanctions on plaintiff and its attorneys pursuant to the Equal Access to Justice Act (EAJA) for their bad faith in initiating and prosecuting this action. The EAJA provides in relevant part as follows:
28 U.S.C. § 2412 (emphasis added). Defendant asserts because a prevailing party could receive attorney fees under the common law if its opponent acted in bad faith, Chow is entitled to attorney fees based on 28 U.S.C. § 2412(b).
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Chow v. U.S., 94-1280
...v. The UNITED STATES, Plaintiff-Appellee. No. 94-1280. United States Court of Appeals, Federal Circuit. June 27, 1994. 850 F.Supp. 39 The parties having so agreed, it is ORDERED that the proceeding is DISMISSED under Fed.R.App.P. 42(b). ...